Cost reduction is always a topic on the agenda for companies and becomes more important in times of economic recession. In this context, tax planning becomes more important for corporations, given the possibility of reducing the tax burden they bear.
However, mere tax savings are not sufficient justification to make tax planning lawful. According to the current understanding of the Brazilian Federal Revenue Service, tax planning that represents an indirect legal transaction, concealment, simulation, fraud of the law, abuse of rights and does not have a business purpose is considered illegal.
In recent years, federal tax authorities have been heavily scrutinizing their tax plans, resulting in numerous tax assessments resulting from failure to take into account tax planning. According to the 2016 Annual Tax Inspection Plan made available by the Brazilian Federal Revenue Service, the main operations being subject to inspection are tax planning linked to corporate reorganization events with the generation of amortizable assets, tax planning involving equity investment funds, tax planning involving image rights of professionals, and tax evasion in the cigarette, beverage, and fuel sectors.
The main difficulty in structuring tax planning lies in the application and interpretation of the concepts of indirect legal transaction, concealment, simulation, fraud of law, abuse of rights and business purpose, since there are no express definitions for these terms in tax legislation. In fact, due to Brazil's participation in the action plan developed by the Organization for Economic Cooperation and Development (OECD) to combat aggressive international tax planning (Base Erosion and Profit Shifting - BEPS), a bill is being discussed internally at the Brazilian Federal Revenue Service that aims to define the concept of business purpose, in addition to establishing the parameters for tax liability of economic groups in intragroup commercial and financial transactions.
Until then, taxpayers must take all necessary care when structuring their tax plans given the strong action of the federal tax authorities on this issue.
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